"BLOG: 270,200 Reasons for CT to Expand Angel Investor Tax Credit Eligibility"
Angel investors have contributed to 270,200 new jobs annually, nationwide, and Connecticut will be poised to bring more of these jobs home if state lawmakers expand angel investor tax credit eligibility.
The lifeblood of startups is access to capital. That's important because young firms have accounted for more than half of net new jobs since the Great Recession. And although bank loans to large businesses have bounced back, bank lending to small firms and startups have failed to top 2008 levels.
Entrepreneurs seeking alternative sources of capital has contributed to the rise of angel investors and angel groups. That’s where angel investors and angel groups have stepped in.
When it comes to angel investors, think of CNBC’s Shark Tank: wealthy individuals who use their money to invest in startup companies, and they usually invest at the seed funding stage.
However, it's worth noting that unlike on television, most angel investors aren't trying to pull a fast one on their fellow angels – instead, they often pool their resources together to invest in the best opportunity. Also, many angel investors pool their money together, forming what's often referred to as an angel group.
Angel investors and angel groups not only bring much-needed capital to the startups they fund. Many bring wisdom and experience, too, often playing a mentor role with companies in which they've chosen to invest.
Significant investments are being made by angels nationwide. In fact, angel investors contributed a total of $24.6 billion – averaging $345,390 per deal – in 2015, according to the University of New Hampshire’s Center for Venture Research. Angel investors also contributed to over 270,000 new jobs – nearly four jobs per angel investment – in 2015.
Also, startups funded by angel investors are nearly 25 percent more likely to survive for up to three years and grow employment by 40 percent over non-angel funded startups, according to a study by Josh Lerner of Harvard Business School and Antoinette Schoar of the MIT Sloan School of Management.
ANGEL INVESTOR TAX CREDIT
Connecticut’s economy continues to sluggishly rebound from the Great Recession. In fact, a recent report shows that in 2016, the Constitution State ended the year with 200 jobs less than it started. And when compared to other New England state, Connecticut has been hampered by the slowest pace of post-recession job growth.
At the state level, a bright spot in economic growth has been due in part to the state’s angel investor tax credit. Connecticut state law allows angel investors who funnel at least $25,000 to an early-stage business in particular sectors to take a 25 percent tax credit on that investment.
Since 2010, when Connecticut introduced its angel investor tax credit, more than 200 investments by 90 angels in more than 50 companies had occurred across our state, according to the New Haven Register. Also, following the state legislature led the charge to lower Connecticut's angel tax credit threshold from $100,000 to $25,000 in 2012, investment pledges grew – more than 350 percent – from $2.4 million to $8.6 million.
Last year, the state legislature extended the angel investor tax credit program for certain businesses from July 1, 2016, to July 1, 2019. However, this year several state legislators have sponsored a bill that if passed will take the program even further, allowing investments in additional types of businesses to qualify for the angel investor tax credit.
Here's the bottom line: Connecticut's economy is struggling, and by expanding eligibility for the angel investor tax credit program – a pro-growth, pro-job creation measure – we can show that our state means business when it comes to winning the competition for tomorrow's jobs.
For more information on An Act Expanding Investment Eligibility Under the Angel Investor Tax Credit Program (HB 5583), and to see sponsors of the bill, click here: http://bit.ly/2mki86U.